Posts tagged with Budget

Spending outpaces revenues for key City Hall fund in 2015, and is projected to do so in 2016; city’s hotel tax sees big growth

Unlike in Topeka, there have not been late-night meetings, tossing the legislative couch cushions for loose change, manipulation of voodoo dolls or other such generally accepted state governmental accounting practices going on at Lawrence City Hall. Nonetheless, there is some interesting City Hall budget news to report: There was some deficit spending that occurred at City Hall in 2015.

According to preliminary numbers, Lawrence spent nearly $220,000 more than it received in revenue for its general fund in 2015. The general fund is the main account the city uses to fund a majority of public services — everything from police and fire service to administrative services. What’s more significant is that the city is projected to spend about $890,000 more than it receives in revenue in 2016, according to the latest report.

So, what does that mean? How does the city spend more money than it receives? Easy. You and I keep cash in our freezers to use in emergencies and for unexpectedly good deals on leftover Easter candy. Well, the city has a really big freezer. It has something called a “fund balance,” which is basically just an accumulation of unspent money from prior years. (Evidently, the city doesn’t donate plasma to build its fund. Daddy gets mighty woozy during candy clearance season.)

The city’s fund balance account for its general fund was $12.9 million at the beginning of 2015. By dipping into it a bit, the amount fell to $12.7 million at the end of the year.

But as I previously mentioned, more interesting are the current projections for 2016. The city’s finance department is projecting the city will partake in deficit spending to the tune of $891,000 in 2016. That will cause the general fund balance to drop to $11.8 million. That is a significant drop because the city’s general fund balance would then amount to 14.8 percent of the city’s annual general fund expenditures. The city has a budget policy that says the fund balance shouldn’t fall below the 15 percent level. The policy notes that the city relies heavily on sales tax revenue, which can be volatile, so the policy aims to ensure the city has an adequate hedge against a downturn at all times.

It will be interesting to see how city commissioners craft their 2017 budget, and whether they make any midyear adjustments in 2016. The budget process for 2017 officially begins Tuesday with a City Hall study session on the budget. The city will pass a 2017 budget by August. This should be one of the more interesting budget sessions in quite some time at City Hall. (That’s kind of like saying prepare to watch a really good game of Monopoly, but still . . . ) This will be the first year in the 20 some years I’ve covered City Hall that we might see a major change in budgeting philosophy. New City Manager Tom Markus may have different ideas about how to craft budgets, different ideas on appropriate fund balances and different ideas on spending decisions. Of course, ultimately it will be city commissioners who make the final decisions, but they pay a city manager to give them guidance on such important matters.

The issue of how much Lawrence ought to keep in reserve may be one to keep a particular eye on. There certainly have been arguments on both sides of that issue. Some have said Lawrence has kept too much in reserve, while others have argued those reserve amounts have helped the city keep an excellent credit rating.

Spending more than it receives in a year isn't unheard of by the city, but it doesn't happen frequently. I believe the last time the situation existed in the city's general fund was 2011, and I don't think at any point in the last decade has the city done two years in a row of deficit spending.

City Hall reporter Nikki Wentling will be covering the budget process extensively this summer, and I’ll be chiming in periodically, in between plasma runs. In the meantime, here’s a look at some budget numbers from the city’s most recent report.

Note: All numbers for 2015 are preliminary, which means they haven’t been audited yet and may be subject to slight changes. (That’s what “preliminary” means at City Hall. I just wanted to clarify because it seems to mean something different at the Statehouse.)

— In 2015, the city received $76.1 million in general fund revenue, up $2.5 million or a 3.3 percent increase Expenses, though, increased by $3 million, or an increase of 4 percent. In case you are wondering, inflation — as measured by the Consumer Price Index — was less than 1 percent in 2015, but City Hall leaders would point out that the type of expenses government has and a consumer has are different. In other words, governmental inflation is probably something different from consumer inflation.

— Sales tax collections in the city increased by $1.3 million or 3.7 percent in 2015. Sales tax collections made up 47 percent of the city’s total general fund budget in 2015.

— Property tax collections in the city increased by $1.3 million or 8.3 percent in 2015. Property tax collections made up 22 percent of the city’s general fund budget.

— Franchise fees, which are a special tax that utilities pay for the use of city right-of-ways and such, dropped significantly in 2015. Total franchise fee revenue dropped $500,000 or 6.5 percent. Franchise fees made up about 9 percent of the city’s general fund budget. A mild winter caused franchise fees for natural gas to drop by about $200,000, as less gas sold means fewer franchise fees for the city. The amount of franchise fees the city collected from land-line telephones also plummeted by about $200,000.

— The idea of attracting more people to Lawrence hotels through Rock Chalk Park, new hotel construction, and other ventures does appear to be paying off. The city’s guest tax fund collected $1.6 million in 2015, which was an increase of 45 percent compared with 2014 totals. The guest tax fund now has a $1 million fund balance. It will be interesting to see how the city treats that new money. Will it continue to invest guest tax dollars only into tourism-related activities, or will it try to use that newfound money as a way to offset some weakness in the general fund?

— One other fund that is showing some weakness is the city’s recreation fund, which runs the recreation centers, classes and other types of activities. The fund had a great year in collecting fees from users — fee revenue grew by 17 percent. But expenses also grew. The fund spent about $110,000 more than it received in revenues in 2015. That marked at least the second year in a row that fund has had deficit spending. The fund, however, still has about $900,000 in reserve.

— The city’s water and wastewater fund — the department that runs the city water and sewer service — had a good year. Revenues for that fund, which has benefited from higher water and sewer rates, were up 5.5 percent. The fund received about $1.5 million more in revenue than it had in expenses in 2015. The fund has a very large fund balance of $22.3 million, in part because the water and sewer system is preparing for some major expenditures. Remember that a new sewage treatment plant is being built south of the Wakarusa River, and the city believes it has significant work to do to upgrade other water and sewer infrastructure.

— The city’s trash service also had a good year. Revenues grew by 3.4 percent, and the division had revenues that exceeded expenses by about $385,000.

— The city’s golf course did not have such a good year. Revenue at the city-owned Eagle Bend Golf Course fell by about 5.5 percent in 2015. The golf course also cut expenditures to try to match revenues, but ended up having expenses exceed revenues by about $32,000. The golf fund, though, still has about $200,000 in reserve.

Commissioners will begin discussing all things budget-related at a study session at 3 p.m. Tuesday at City Hall.

Reply 1 comment from Michael Kort

Lawrence retail sales still up for the year, but latest report raises questions of a slowdown

You’ll have to decide whether you are in a glass-half-full or a glass-half-empty mood today. A new report from Lawrence City Hall on the city’s retail marketplace could leave you feeling either way.

First, the good news: Retail sales are still tracking above 2012 totals. Retail sales tax collections are up nearly 1.7 percent compared to the same time last year.

This month’s report tracks sales made through mid-May. Through that time period, taxable sales in the city have totaled about $677 million, up from about $666 million during the same time in 2012.

That’s good news, especially given that 2012 was a stellar year. Retail sales totals in 2012 grew by more than 5 percent, which was the largest percentage gain since 1998. So, the fact that retail sales are going above and beyond those totals is significant.

As for the glass-half-empty part, the report does have some numbers that likely will catch the eyes of City Hall budget makers. Sales tax collections for the latest collection period, mid-April to mid-May, were down by about 2 percent. A one-month decline isn’t cause for much concern, but this is the second month in a row that retail sales have declined. That makes next month’s report one to watch because three consecutive months of declines could be considered a trend.

The larger issue, though, is the city is now at the halfway point for its sales tax collections in 2013. (In case you are wondering, the city receives a check from the state once per month, and it recently received its June check. Because of lag time in collections, the June check only represents sales made through late May. Now you can amaze your friends at parties this weekend with the inner workings of the state’s sales tax collection system.) At the halfway point, sales tax collections are running below the city’s budget projections.

Thus far, collections are only down by about 0.2 percent compared to the budget. One good month will wipe out that shortfall. But the question, of course, is whether something has changed in the economy that will cause good months to be fewer and farther in between. The city is now projecting one scenario where sales tax collections would come in about 1 percent under budget, which would create about a $260,000 shortfall in the city’s budget.

It also would get the city’s 2014 budget started off on a bad foot. City Manager David Corliss’ 2014 recommended budget, which was released yesterday, projects sales tax revenues to grow by 2 percent over the amount the city budgeted to collect in 2013. So, if the 2013 collections come in less than budgeted, then sales tax collections in 2014 will have to grow by even more than 2 percent to meet budget.

None of this is new. Projecting sales tax collections is always a difficult part of the budget process. And if it makes you feel any better, cities all over the state are struggling with the issue too. Retail sales numbers are all over the board. Here’s a look at some of the larger retail markets in the state:

• Emporia: up 2 percent

• Hays: Down 3.1 percent

• Kansas City: Up 5.2 percent

• Manhattan: Down 3 percent

• Ottawa: Up 5.1 percent

• Overland Park: Up 2.2 percent

• Olathe: Up 2 percent

• Shawnee: Up 4 percent

• Topeka: no change from the prior year

So, what does all this mean? Is the glass half full or half empty? I don’t know. But, of course, I have a certain policy about glasses, a certain beverage and this heat. I take no chances. I keep a glass in each hand — one half full and the other half empty.

Reply 3 comments from Frankie8 David Holroyd